Peru has the fiscal strength required for reconstruction following Coastal El Niño disasters given its resources and low debt level, investment bank Latin Pacific Capital affirmed on Monday.
"We have the fiscal strength to face the reconstruction; we are an under-indebted country," Latin Pacific Capital Vice-President Emilio Zuñiga told Andina news agency.
"And we should not forget the Government made a strong fiscal adjustment last year, thus allowing for greater space [for debt] this year," he added.
It must be noted President Pedro Pablo Kuczynski on Friday estimated immediate response efforts could average US$2 billion-US$3 billion, and long-term works may require some US$5 billion-US$6 billion to make the country more modern and organized.
Thus, total reconstruction works could cost around US$9 billion.
Major investment
In this respect, the top executive reiterated the Inca nation has the necessary fiscal resources and highlighted the major investments anticipated will pump up the economy.
"According to the information we've received on damages to highways, homes and agricultural lands, a US$3-billion [reconstruction] cost seems accurate and reasonable," he said.
Zuñiga explained such investment is feasible, as it represents close to 2% of GDP.
Fiscal trajectory
The Latin Pacific Capital officer also supported the upcoming fiscal relaxation measures anticipated by Economy and Finance Minister Alfredo Thorne.
"[…] we must bear in mind the reconstruction deficit can be narrowed by the increasing [economic] growth expected," he noted.
He explained said lower-than-expected deficit is possible, since coming investments will lead to rebouncing productivity and thus higher fiscal revenue.
Fiscal Stabilization Fund
On the other hand, Zuñiga underlined the Government relies on the Fiscal Stabilization Fund (FEF) to cover part of reconstruction works.
"If reconstruction costs US$3 billion and US$2-US$2.5 billion are funded by the FEF, it won't be the end of the world. That fund was created for unexpected impacts, so those managing the national accounts should not worry about that," he pointed out.
Lastly, he observed the post-emergency process will prop the construction sector up.
(END) RGP/JJN/DHT/MVB
Published: 4/10/2017